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http://hdl.handle.net/10419/37110
  
Title:Quantifying optimal growth policy PDF Logo
Authors:Grossmann, Volker
Steger, Thomas M.
Trimborn, Timo
Issue Date:2010
Series/Report no.:Diskussionspapiere der Wirtschaftswissenschaftlichen Fakultät // Wirtschaftswissenschaftliche Fakultät, Leibniz Universität Hannover 440
Abstract:This paper develops a comprehensive endogenous growth framework to determine the optimal mix of growth policies. The analysis is novel in that we capture important elements of the tax-transfer system and fully take into account transitional dynamics in our numerical analysis. Currently, for calculating corporate taxable income US firms are allowed to deduct approximately all of their capital and R&D costs from sales revenue. Our analysis suggests that the status quo policy leads to severe underinvestment in both R&D and physical capital. We find that firms should be allowed to deduct between 2-2.5 times their R&D costs and about 1.5-1.7 times their capital costs from sales revenue. Implementing the optimal policy mix is likely to entail huge welfare gains.
Subjects:Economic growth
Endogenous technical change
Optimal growth policy
Tax-transfer system
Transitional dynamics
JEL:H20
O30
O40
Document Type:Working Paper
Appears in Collections:Diskussionspapiere, Wirtschaftswissenschaftliche Fakultät, Universität Hannover

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